2014 (8) TMI 1121 - AT - Income Tax

Depreciation on machinery - ownership of machinery - Held that - the transfer of asset to the assessee‟s name is not a prerequisite so long as the asset in question is finally used and assessee is constructive and beneficial owner of the same. Therefore, the CIT (A) has rightly adjudicated the issue under consideration and the decision taken by him is fair and reasonable and it does not call for any interference - decided against Revenue.

Summary

Issues:
1. Disallowance of expenses due to non-production of parties.
2. Granting depreciation on machinery without ownership title.

Issue 1: Disallowance of expenses due to non-production of parties:
The case involved two appeals filed against the CIT (A)'s order for the assessment year 2008-2009. The Revenue appealed against the CIT (A)'s decision to restrict the addition of Rs. 2,80,337 and allow depreciation on machinery amounting to Rs. 1,35,421. The Revenue argued that the CIT (A) erred in directing the AO to restrict the addition without appreciating the inability to produce two parties, M/s. Bhakti Trading Co. and M/s. Sunrise Enterprises. The AO made additions on purchases from these parties amounting to Rs. 76.85 lakhs, treating them as unexplained sales. The CIT (A) deleted the addition after the assessee submitted banking transactions and invoices, explaining the non-appearance of the parties. The CIT (A) confirmed an addition of Rs. 2,80,337, considering the profits before depreciation. The Revenue contended that the addition was unjustified, as no evidence questioned the genuineness of the transactions. The CIT (A) held that assessing the net income at 6% before depreciation would cover revenue leakage due to unverifiable cash expenses. The ITAT upheld the CIT (A)'s decision, emphasizing the constructive ownership of the asset and fair assessment of profits.

Issue 2: Granting depreciation on machinery without ownership title:
Regarding the ownership title of the machinery (JCB), the AO raised concerns as the asset was not registered in the assessee's name. The CIT (A) overturned the disallowance of depreciation, citing constructive ownership and beneficial use of the asset. The ITAT concurred with the CIT (A)'s decision, emphasizing that registration under the Motor Vehicle Act does not solely determine ownership. The possession and beneficial ownership of the asset were crucial for claiming depreciation under section 32(1) of the Act. The ITAT referred to relevant case laws supporting the claim that registration in the assessee's name was not mandatory for depreciation eligibility. The ITAT dismissed the Revenue's appeal, upholding the CIT (A)'s decision to allow depreciation on the machinery.

In conclusion, the ITAT dismissed the Revenue's appeal and upheld the CIT (A)'s decisions on both issues, emphasizing fair assessment practices and constructive ownership principles in determining depreciation eligibility.